Consumer Adoption and Evolution of Demand - Research Proposal Example

A digital good or service Contents Contents 2 Introduction 3 Digital music evolution 3 Consumer adoption and evolution of demand 4 Distribution of the product 6 Conclusion 8 Works Cited 9 Name of the Student Name of the Professor Name of the Course Date A digital good or service Introduction In simplest language, digital goods can be described as anything that is stored, delivered and used in a digital format. These goods have certain characteristics that differentiate them from physical goods. Digital goods are non-rival, infinitely expansible, discrete, non-spatial and recombinant. These non-tangible web goods have the property of a public good, in the sense that once they are sold by sellers, they can be used by purchasers non-exclusively. One of the properties of digital goods is that they are reproducible at zero marginal cost and therefore, intellectual property rights become an extremely important aspect for producers of digital goods in order to realize economies of scale. However, it has been observed that violations of copyrights occur with every possible digital goods (Vogelsang 190-194). One of the basic properties of public goods is that they come with externalities as their provision is associated with the problem of free riders. If one member purchases a digital good, then other members of the society can easily enjoy consumption of the same, without paying any extra amount for it. Digital music evolution There are various types of digital goods, like, digital information, that can be found in databases, digital products of entertainment industry, like, movies or music, or general services, like, banking or brokerage. This paper focuses on digital music industry and analyzes its nature. It has been observed that popularity of digital music has proved to be a curse for the traditional recording companies and audio cassettes. This is because digital music files can be found on file sharing networks, which can be compressed and exchanged on the internet in a matter of minutes, thereby eliminating needs of consumers to buy music cassettes (Petiz and Waelbroeck, “An Economist’s Guide to Digital Music”). With development of technology and invention of smart phones, popularity of digital form of music is on a rise and there has been a consistent decline in sales of traditional form of music. Presently, the situation has almost been paradoxical. On one side, owners in traditional music industry have begun to sue internet users, who upload copyrighted files without authorization of the copyright owners; whereas, on the other hand, digital music companies are trying to shield themselves under Digital Rights Management to control uses of music in digital format. Technologically, there are wide differences between the quality of analog and digital music. Besides quality of sound, longevity of music storage is also much superior, in case of digital music. The grounds of difference between vinyl records and digital music are (Banerji and Ghosh 166-167): Firstly, digital music is portable in the truest sense and this has further evolved with development of android phones and portable music players, like, i-pods. The greatest advantage is that it can be transferred over internet networks to anywhere within seconds. Secondly, quality of digital music does not degrade with passage of time, like, analogue audio services, which had also added to their popularity. Thirdly, digital audio can be hugely manipulated, like, recording and processing the audio at various levels, according to needs of customers. Finally, superior quality of sound has been one of the major factors, which have dominated the meteoric rise of digital music. Consumer adoption and evolution of demand The changing pattern of preferences of consumers can be studied from changes in the pattern of sales of digital music, in the last decades. A study conducted by Martin Peitz and Patrick Waelbroeck (2004) has analyzed changes in the pattern of sales of the music industry in details and the results obtained had clearly indicated the evolution of demand in music industry. During 1991 to 1999, there has been a decline in sales of traditional music formats and a consistent rise in sales of CDs. However, in the new millennium, this trend has changed once again and presently, a decline in sales of CD is seen, along with a growth in the new file-sharing technologies in the second half of 2001 (Peitz and Waelbroeck, “An Economists Guide to Digital Music”). Growth in the number of internet users and free availability of music files on the internet are primary causes that have led to a decline of CD sales. The consumer behavior has changed considerably over the past few years and there has been a growing inclination towards digital music formats. The following table shows the downloading pattern of digital music by U.S. customers, according to their demographic profile. Figure 1: Statistics of Download (Source: Peitz and Waelbroeck, “An Economists Guide to Digital Music”) It can be seen that with time, there has been a rise in the number of people who downloaded digital music. The study had also concluded that the age group of 25-34years had recorded the highest number of downloads, compared to other age groups (Peitz and Waelbroeck, “An Economists Guide to Digital Music”). It has been observed that when most consumers hear music clips on the internet and they either download it or purchase the CD. Consumers mostly downloaded music as it was freely available. Distribution of the product The evolution of digital music has produced significant changes in the market structure and value chain. The spread of digital music has not only reduced the distance between artistes and consumers, but has also hugely modified the distribution chain. This is because most of the distribution networks operate through online channels, which greatly reduce the cost of replication and production. The overall structure of the distribution value chain can be presented in the following diagram: Figure 2: Distribution Value Chain (Source: Bockstedt, Kauffman and Riggins, “The Move To Artist-Led Online Music Distribution”) The producers of music include record label companies and artists, who compose and package the content, which then reaches to digital music retailers, before being finally offered to consumers, who either buy the same on internet platforms or download its pirated versions. If any purchaser uploads the music file, it can be easily downloaded without any cost. In the beginning, when digital music industry was evolving, distribution channels were largely dependent on an open value chain. It comprised interchangeable file sharing networks, personal computers, jukebox software and portable music players. The phenomenon of file sharing, as a basic mode of distribution, was dominant in the period of 90s. The initiation of the evolution of distribution channels was marked by controversy, when traditional record label companies began losing their sales due to cheaply downloadable digital music. Consumers and artists, on the contrary, largely benefitted from this process, as the options available to them, in terms of accessing more music, had greatly expanded. MP3.com was the first digital music distribution service and had dominated the distribution scene of digital music, since its nascent stage (Klyme, “Digital Music Distribution”). Its first competitor was Napster, which had significantly altered the face of the music industry by introducing the P2P technology, which had allowed music listeners to share music in superior ways. Despite being an illegal method to access music, distribution of digital music has come a long way since its inception. The newer companies in this sector have legalized their operations and emerged as legal download services. In contemporary times, distribution channels have grown vastly with music providers like, Napster, Apple i-tunes, Buymusic.com, Listen.com, Walmart.com and e-classical.com (Bockstedt, Kauffman and Riggins, “The Move To Artist-Led Online Music Distribution”). The market structure of digital music industry can be best described as that of an oligopoly, where the number of players is limited. All individual players have some power over the product market, which allows them to slightly alter prices in order to gain competitive advantage over their rivals. Even though there are quite a few players in the market, majority of market share is dominated by Apple. Apple had definitely not invented digital music, but has taken it to a new high by means of high technological innovation. This market is under the regulation of Recording Industry Association of America (RIAA) in U.S.A., which prevents this industry from practicing illegal activities. Conclusion This research has focused on the digital good market and has chosen digital music as the field of study. The first section of the paper has focused on characteristics of digital goods and had found that it can be categorized as a public good. It has been observed that digital music industry has almost replaced the analogue music market, owing to its superior form. The consumers have also shaped their preferences according to newer trends and have quickly shifted to listening to digital music. The popularity of digital music has been evident through rise of sales figure of the same as well as increasing number of downloads. The final section of the project deals with distribution channels of the digital music industry. The distribution channel has itself undergone several transitions, one of which is its transformation into a legal downloadable service. Though the market structure can be broadly defined as oligopolistic, with few players in the industry, yet it has been observed that the share of Apple is highest. Works Cited Banerji, Ashok and Anada Mohan Ghosh. Multimedia Technologies. New Delhi: Tata McGraw-Hill Education, 2010. Print. Bockstedt, Jesse, Robert J. Kauffman and Frederick J. Riggins. “The Move To Artist-Led Online Music Distribution.” Hawaii International Conference on System Sciences. IEEE. 2005. Web. 31 Jan. 2014. Klyme, Natalie. “Digital Music Distribution.” Cambridge University Communications Research Network. n.p. 2005. Web. 31 Jan. 2014. Peitz, Martin and Patrick Waelbroeck. “An Economists Guide to Digital Music.” GESY. Governance and the Efficiency of Economic systems. 2004. Web. 31 Jan. 2014. Vogelsang, Michael. Digitalization in Open Economies: Theory and Policy Implications. Germany: Springer, 2010. Print. Read More